Dec. 13 (Bloomberg) -- The Canadian dollar traded at an
almost three-year low after Bank of Canada Governor Stephen
Poloz said interest rates would not change for “quite some
time” amid speculation the Federal Reserve will slow stimulus.

The currency fluctuated against its U.S. peer as the
interest rate advantage of Canada’s two-year bonds compared with
U.S. counterparts dropped to 77 basis points, the narrowest
spread since Sept. 4, limiting the relative appeal of the
Canadian dollar-denominated debt. U.S. policy makers meet on
Dec. 17-18 amid speculation the Federal Open Market Committee
will slow bond purchases used to keep borrowing rates low.

“We’ve seen some gradual erosion in short-term yields,
between Canada and the U.S. which may add some more short-term
pressure on the Canadian dollar,” said Shaun Osborne, chief
currency strategist at Toronto-Dominion Bank, by phone from
Toronto. “From a broader point of view it’s probably about the
FOMC and the tapering bet that’s supporting the dollar.”

The loonie, as the Canadian dollar is known for the image
of the aquatic bird on the C$1 coin, was little changed at
C$1.06638 per U.S. dollar at 108:13 a.m. in Toronto. One loonie
buys 94 U.S. cents.

The withdrawal of stimulus by the U.S. is seen weighing on
markets worldwide, which have been bolstered by the Fed policy
goal of keeping borrowing rates low to spur economic growth.

The currency of Canada’s commodity-exporting peer Australia
fell yesterday after central-bank Governor Glenn Stevens
signaled a weaker local currency is preferable to lower interest
rates to spur the economy, saying the Aussie’s natural level is
probably closer to 85 U.S. cents.

“If you look at when the price took off in dollar/CAD it
was directly linked to when Mr. Stevens comments came out, he
put a target to Aussie/U.S., and commodity currencies in general
were swept up in that, the Canadian dollar being one of them,”
said Brad Schruder, director of foreign exchange at Bank of
Montreal, by phone from Toronto. “In general, it’s a commodity
currency reaction.”